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Advisor Insights

Key Takeaways from the 2019 T3/Inside Information Advisor Software Survey

These are the technology tools advisors are using--and what they're planning to add.

Now in its third year, Joel Bruckenstien and Bob Veres' T3/Inside Information Software Survey is back with fresh insight into the technology tools advisors are currently using, what they think of them, and what tools they're looking to add to their businesses in the future. This year's expanded survey includes 20 software categories compared to last year's 13 primary categories. It also boasts a much larger sample size, with participation increasing from over 1,500 advisors in 2018 to more than 5,500 in the 2019 survey. While several user rating and market share metrics seem consistent with last year's results, a few bonus questions in this year's survey indicate strengthening trends in the industry at large.

While Market Leaders Remain on Top, the FinTech Landscape Provides an Increasing Number of Choices
Looking purely at market share and average rating results compared to the previous two years' surveys, it’s difficult to find major swings or disruptive trends in most categories. This isn't entirely unexpected, given that market leaders tend to remain popular (particularly in the short-term), and these are the solutions to which most advisors are exposed and are familiar with. Morningstar Office and Envestnet/Tamarac are again top choices for "all-in-one" advisor software solutions, though it's more likely firms are relying on these solutions as primary tools in their tech stack, rather than actually using them as their only technology provider. Riskalyze increased its market share and lead over FinaMetrica for risk tolerance profiling, and many advisors are increasingly using Riskalyze's Stats/Scenarios functionality as an economic analysis and stress testing tool for client portfolios (a relatively new solution category for advisor technology). Likewise, the two giants of financial planning software remain the clear favorites, with MoneyGuidePro and eMoney again earning top ratings and owning a combined market share greater than all other planning category solutions combined. RightCapital placed a close third in satisfaction ratings, though a more distant third in market share compared to 2018. 

A notable exception to the 2019 survey results remaining fairly consistent with 2018 was the CRM software category, where Redtail was the dominant leader in market share at nearly 57%. 2018 survey results indicated a much closer race in CRM software market share, with Wealthbox taking the top spot at 23%, and Junxure and Redtail fairly close behind. While seismic shifts in CRM software usage are theoretically possible within the advisor community, a much more likely explanation is a significant change in survey demographics, which the authors believe included a disproportionate number of Wealthbox users in 2018, and a similar swing toward RedTail users in 2019.

While the broader trends in market share, user satisfaction, and market penetration for major categories were fairly consistent with previous years' surveys, the list of "other" software tools mentioned by respondents continues to grow. Many advisors are likely to limit their search for a new technology solution to the market leaders, or believe the market leaders are their only choice. Yet as we've seen in these survey results, there are a multitude of choices available in each category. Using financial planning software as an example, respondents mentioned an additional 17 software tools not included in the main draw of 14 primary solutions.

Financial Planning Software Most Valuable to Newer Firms
Consistent with last years' results, a majority of respondents said that CRM software was their most valuable technology, with over 52% choosing their CRM solution over the second and third place categories financial planning software (23%) and portfolio management tools (13%). Yet a deeper dive into the data again suggests that newer advisors (those with one to five years of experience in the industry) are more likely than their more experienced peers to regard financial planning software as their most valuable technology solution. One potential explanation for this dichotomy is that more experienced advisors are more likely to see greater value in a software solution that can help them keep their work organized, particularly when working with larger teams where multiple advisors need to be on the same page for a larger client base.

Another is that newer advisors who value financial planning software over other tools have a different value proposition altogether and are focused on providing services beyond portfolio management. In the words of the survey's authors, "Could this be leading to a different compensation model where advisors are paid for planning rather than asset management?" Signs point to yes.

Cybersecurity: A Blind Spot for Advisors?
Total market penetration for the Cloud Hosting/Cybersecurity category was again strikingly low this year at 5.68%, leading the survey's authors to worry advisors aren't actually taking cyber threats seriously. However, looking at the list of "mainstream" solutions for which data was collected, it's worth questioning whether advisors actually need a specific cybersecurity software suite in order to prevent security incidents and stay compliant. In any organization, your weakest security link isn't your antivirus software, email provider, or cloud storage solution, but the human beings using them. Spending top dollar for the best cybersecurity software suite to guard your firm's castle won't make much of a difference if you or one of your employees leaves the proverbial door open because you didn't have processes or procedures in place, or because you didn't make sure all personnel were properly trained. 

Further, many advisor technology tools associated with sensitive client data support multifactor authentication, which when enabled can make it significantly more difficult for someone to gain unauthorized access. The same is true of most major cloud/email providers (Microsoft Office 365, G Suite, etc.) that have built-in cybersecurity features and resources included. While we should rightfully be concerned about firms still clinging to insecure, in-house legacy servers and those without a data security plan, firms that have wisely implemented a cybersecurity program, have embraced the cloud, optimized password management, enabled multifactor authentication wherever available, and trained all employees what to look out for are likely doing just fine with their existing technology solutions.

How Much Should You Be Spending on Technology?
A bonus question this year, the 2019 survey aimed to determine how much advisory firms are spending on technology as a percentage of top-line revenues. Though the results varied significantly, most firms clustered in the 1% to 5% range, with 1% to 2% being the most popular response.

Does this mean you should aim to spend 1% to 2% of revenue on software? In a word, no. Each firm is unique, and technology expenditures are naturally going to vary wildly, particularly when firms have different value propositions. Any potential technology solution should instead be independently evaluated on the value it adds to your firm and the problem you are trying to solve. Costs are without question important, but only advisors themselves can decide whether a particular tool is worth the impact to their bottom line.

Access Ben's article archive here. Ben Brown is a certified financial planner and an IRS-enrolled agent. He is the founder of Entelechy, a fee-only financial planning and investment management firm based in Bethesda, Maryland, serving clients in the Washington, D.C., area and nationally.

The author is a freelance contributor to The views expressed in this article may or may not reflect the views of Morningstar.